Experiments on supply chain contracting: effects of contract type and relationship length

Official URL: http://192.168.1.20/record=b1378220 (Table of Contents)

In this thesis, we conduct experiments with human decision makers on supply chain contracting. We consider a manufacturer-retailer supply chain where the manufacturer sets contract parameters and the retailer faces the newsvendor problem. Contrary to theoretical predictions, we find the experimental performance of the wholesale price contract and the buyback contract to be close to each other. The buyback contract fails to fulfill its promise of inducing high order quantities leading to higher supply chain profits. The manufacturers offer more profitable buyback contracts to retailers, and as a result, the retailers make higher profit and the manufacturers make lower profit than predicted. On the contrary, the simple wholesale price contract resulted in higher retailer and total supply chain profits than predicted, thanks to the overstocking bias of the retailers. Another surprising observation is that experiments with short-run interaction between the manufacturer-retailer pairs resulted in higher profit than the experiments with long-run interaction. Finally, we did not find consistent evidence to support the existence of learning-by-doing, and of certain decision heuristics mentioned in literature.